Financial Development Theory And Empirical Research In China

expansion to market allocation.This paper examines the mechanism that financial development promote technical progress and economic growth under openness.Based on Romer's(1990) intermediate input of types of expansion-type endogenous growth model,this paper put the financial sector endogenous into endogenous growth models,and examines the effect that financial sector promote technological advances and economic growth through increasing the output efficiency of R&D and technological absorption capacity. Through the competitive equilibrium analysis,we get the key conclusions that the steady-state growth rate depends on the level of financial development. Financial development, through financing for R&D directly and advancing technological absorption capacity, enhance the output of R&D and economic growth. The paper Further tests the mechanisms that financial system promote growth with the Chinese provincial-level panel data from 1998 to 2007,and find the effect that finance promote growth through R & D isn't obvious,but which enhance absorptive capability, and the technology spillover effect of FDI is better than trade's.Since the financial sector's development has cost,needing to absorb the physical capital and human capital,when the financial sector over-development,excessive capital has been allocated in the financial sector, resulting in inadequate investment in the real economy sector. Therefore the financial over-development would cause physical economic contraction, hinder economic growth adverse,the growth effect of financial development is non-linear. This paper examines the non-linear growth effects of financial development with OECD country's data, and the results demonstrate the impact of financial development on economic growth is not linear, but rather an inverted U.There exists an optimal scale of finance,and the potential optimal size of the financial development is mainly contingent on the level of economic development and human capital stock.Finally, the paper also discusses the impact of financial development on poor's income and income distribution.If financial development just improve the quality of current financial products and services,it benefit only the rich,thus widening the income gap;when financial development exhibit enhancing the access to finance, allowing more low-income people and small businesses access to financial services, the income of the poor will increase, and income distribution gap will shrink.This paper tests the impact of financial development on the poor's income and income distribution with Chinese provincial panel data, the results demonstrate financial development disproportionately benefits the poor, reduce income inequality.31% of the income growth of the poor can attribute to distribution effect of finance,and the remaining is caused by growth effect of finance.